WASHINGTON, Jan. 29 (UPI) -- The UPI Think Tank Wrap-Up is a daily digest covering brief opinion pieces, reactions to recent news events, and position statements released by various think tanks.
Ludwig von Mises Institute
(The LVMI is a research and educational center devoted to classical liberalism -- often known as
libertarianism -- and the Austrian School of economics. Grounded in the work of economists Ludwig von Mises and Murray N. Rothbard, LVMI seeks to advance the Austrian School of economics and promote the market economy, private property, sound money and peaceful international relations,
while opposing government intervention as economically and socially destructive.)
AUBURN, ALA. -- In Praise of Tipping
By Robert P. Murphy
One of the most common justifications for government intervention is an alleged "market failure."
There are countless mainstream economic models that purport to show the inefficiency of
unregulated markets, which can ostensibly be improved by political means.
These analyses, however, often abstract away from the real-world problems of dispersed
knowledge and high transactions costs. Upon closer examination, one often finds that the market's
"failure" is in fact the best way humanly possible to deal with a complex situation. And nothing
better demonstrates this resilience of voluntary, decentralized exchange than the custom of tipping.
Tipping, though commonplace, is at first glance a curious phenomenon. Why isn't the tip for a
waiter, say, included in the price of the meal? Or, going the other way, why aren't employees of fast food restaurants tipped? If one assumes that all economic actors possess perfect knowledge, tipping seems to be a quaint and inefficient practice.
But when we realize that market participants do not possess the same knowledge, the practice
become more intelligible. For example, a restaurateur would find it very difficult to keep tabs on his entire staff. As such, it wouldn't be worth the trouble to tailor the wages of waiters and waitresses to their courtesy with customers.
The simple market solution is to allow the customers themselves to evaluate the service of the Waiter or waitress. This not only reduces monitoring costs for the employer, but allows for the satisfaction of possibly different preferences among customers. Indeed, empirical studies, as well as casual observation, suggest that customers (especially male ones) reward physically attractive servers with higher tips, and thus tipping can be understood as a discreet way of channeling the most appropriate personnel into this line of work.
The phenomenon of tipping, broadly conceived, is the real-world market's response to the "missing
markets" postulated in formal economic models. When transactions costs prevent the establishment of a formal institution, spontaneous exchanges still occur to the benefit of both parties.
For example, a bar patron who doesn't wish to wait between drinks may give unusually high tips to ensure that the bartender is particularly attentive. (This avoids the need to set up, say, various zones in the bar, with one section charging higher prices for drinks but guaranteeing quick refills.) Street musicians receive tips ("donations") proportionate to their quality, as judged by their customers.
I personally have found when ordering Chinese takeout that something so simple as allowing the
vendors to "keep the change" means that I will be given preference over other customers (who in this
case happened to be quite rude to the workers) upon my next visit.
To take other examples, one of my friends gives outrageous tips when leaving his car in a parking
garage, on the theory that if and when the attendants decide to take a joyride, it won't be with his vehicle. I have read of a cab driver who makes thousands of dollars more in tips every year by keeping his taxi spotless and having the latest newspapers available for his customers.
Finally, consumers who are egalitarians in their hearts but "know better" in their heads can indulge their generous impulses by rewarding those individuals who possess initiative and a good work
ethic.
The above theory of the "function" of tipping not only provides a plausible explanation, but serves to clarify some of the debates over the custom. In recent times, there has been a drive to increase the range of professions receiving a tip (often at the behest of unions). But tipping only serves a purpose in professions where there is a high degree of subtlety in the performance, and where the productivity of employees is not easily monitored.
It would be rather pointless, for example, to tip the cashier at a fast-food restaurant, since he or she does not have much discretion over the quality of the meal. I would tend to side with tradition when it comes to which professions are tipped, and view with suspicion any move to bring the practice to a new one. In any event, as Steven Landsburg points out, increased income through tipping would in the long run be offset by lower base wages (at least in a competitive labor market).
This insight also shows the folly of arguing for a higher (or lower) percentage when deciding upon
a tip. As with money -- which fulfills its economic function regardless of the quantity of cash in the economy -- tipping serves its purpose so long as everyone's expectations are coordinated. If the standard tip for a meal is 15 percent, then this is taken into consideration when diners choose a restaurant and waiters choose a profession. To switch to a new standard of 10 percent or 20 percent would only introduce uncertainty during the transition period, when prices and base wages adjusted. The purpose of restaurant tipping is to allow diners to deviate from the standard percentage, to either
punish poor service or reward excellent service.
Before closing, I should point out that one of the major "paradoxes" in the mainstream treatment is why people should ever tip when they don't expect to return to a given restaurant (or other business). After all, the voluntary nature of tipping seems to offer a classic opportunity for "free riding."
However, I think this sort of question would be akin to asking why most people don't steal money
from little children, even when there are no police officers in sight. It results from a crude homo economicus approach to human behavior, which is definitely useful in certain applications, but not as a general theory of human action.
The custom of tipping is an excellent demonstration of the market's ability to solve real-world problems of dispersed knowledge and transactions costs in order to ensure the maximum satisfaction of consumer preferences. Normally taken for granted, tipping is in fact a beautiful illustration of the power of voluntary, decentralized exchange.
(Robert P. Murphy is a Rowley fellow of the Mises Institute. )
Cato Institute
WASHINGTON -- As Argentina Teeters, U.S. and IMF Should Withhold Aid, says Cato Analyst and Argentina Adviser
By the Cato Institute
As rioters take to the streets again in Buenos Aires and Argentina's economy teeters on the brink of total collapse, foreign minister Carlos Ruckauf is in Washington for talks with administration officials. Steve H. Hanke, a senior fellow at the Cato Institute and a long-time adviser to former Argentinean President Carlos Menem, had the following comments.
"The visit of these two officials is a mission of breathtaking audacity. Having seized private property on a scale similar to the Soviet expropriations, President Duhalde is coming to Washington to beg for a $15 billion aid package from the U.S. government and the International Monetary Fund. He doesn't deserve a single cent.
"Duhalde's policy is to rob everyone in Argentina -- banks, depositors, corporations, and private citizens who hold pesos or dollars. Instead of bailing out an unprincipled government, tax-paying Americans should refuse to offer any direct aid as long as Duhalde continues with his current policies. The U.S. government is required under law to do just that. It should also veto any IMF proposal to lend money to Argentina.
"Specifically, Argentina needs to make three major changes in policy. First, it must reverse most of the steps it has taken under public emergency provisions to nullify or forcibly rewrite private contracts. Second, it should abandon its disastrous monetary policy and eliminate the peso, replacing it with the dollar. Last, Argentina should cut marginal tax rates to increase revenue, since currently falling revenues suggest the country is on the wrong side of the Laffer curve.
"Until those change are made, Argentina will see no economic growth, nor should it see a penny of American aid."
WASHINGTON -- Social Security Reform Critics' Alternate Proposals Would Overtax Or Underprovide, New Study Shows
By the Cato Institute
In response to the recommendations of the Commission to Strengthen Social Security, critics of personal retirement account proposals are proposing a range of "alternative" options that include higher payroll taxes, significant cuts in retirement benefits, federal investment in the stock market or doing nothing at all, a definitive study released Tuesday by the Cato Institute shows.
The study, "No Second Best: Alternatives to Social Security Privatization," outlines proposals by more than a dozen prominent economists, activists, labor officials and liberal scholars about their "solutions" to the Social Security crisis. These "solutions," however, could deeply impact the poor, women and America's minorities without providing a sustainable long-term formula for increasing retirement security, according to the study.
"Alternate" plans examined in the study include those proposed by such well-known individuals as Henry Aaron of the Brookings Institution, Robert M. Ball of the Century Foundation, Jeff Faux of the Economic Policy Institute and economist Robert Reischauer. The study also reviews the ideas of prominent anti-reform activists, including Hans Reimer of the 2030 Center, Lisa Maatz, formerly of the Older Women's League, Roger Hickey, director of the Campaign for America's Future, and union officials from the AFL-CIO.
In reviewing various payroll tax increase proposals, the study concludes that assuming current projections for Social Security's shortfall in 2016, the required tax burden per worker by 2030 would increase to $1,543 annually. Other proposals reviewed include indexing payroll tax increases to future increases in longevity, targeting a tax hike to upper-income workers by raising the $80,400 cap, taxing all stock transitions at 0.25 percent or raising the capital gains tax from 18 percent to 28 percent.
Examining the impact of these tax-raising "alternate" proposals, the study concludes:
*General payroll tax increases would fall heaviest on low-income workers and African Americans;
*Eliminating the income cap altogether would amount to the largest tax increase in tax history -- $461 billion over five years -- yet only extend the payroll tax solvency of Social Security for seven years;
*Repeal of the tax reductions passed by Congress in 2001 due to expire in 2009 would ultimately have no impact on the solvency of the Social Security system;
*Moving the 5 million state, county and municipal workers who have opted out of Social Security back into the system would result in a 12.4 percent tax hike for those workers, leading them to curtail other private pension savings.
On benefit cut "alternate" proposals, the study concludes:
*Drastically reducing or eliminating spousal benefits would reduce women's retirement security;
*Cutting benefits by increasing the benefit computation years from 35 to 38 years would disproportionately impact women, who have more low earning years;
*Raising the retirement age would have a disproportionately negative impact on African-Americans.
Government investment of Social Security funds, according to the study, would:
*Transfer a significant, if not controlling, share of every major company in America to the government since a 2 percent to 3 percent block of shares traditionally gives a shareholder influence over public companies.
Michael Tanner, director of Cato's Project on Social Security Privatization and author of the study, concluded: "The American people deserve a fair and honest debate about Social Security reform. They deserve to see the various proposals side-by-side so that they can compare the alternatives.
"Given the alternatives, I am confident that Americans will choose to take control over their retirement funds through individual accounts," Tanner said.
The report is available as SSP No. 24 on the Cato Institute Web site at http://www.cato.org/pubs/ssps/ssp-24es.html
Progress & Freedom Foundation
(PFF studies the digital revolution and its implications for public policy. P&FF is ideologically diverse and politically non-partisan, and its work focuses heavily on communications, computing and telecommunications.)
WASHINGTON -- DOJ Flubbed Analysis of Microsoft Settlement; PFF Experts File "Tunney Act" Comments Urging Breakup
By the Progress & Freedom Foundation
In detailed comments presented to the Department of Justice, two Progress & Freedom Foundation experts are severely criticizing the government's handling of the proposed Microsoft antitrust settlement, and urging further consideration of tougher remedies, including a breakup of the software giant.
Submitted under the Tunney Act, which requires a judge to rule that antitrust settlements are in the public interest, their 31-page document will be read by the judge in charge of the case.
"The (Tunney Act) clearly requires, and good public policy demands, an 'evaluation' of the proposed remedy and major alternatives to it," write PFF President Jeffrey A. Eisenach and Vice President for Research Thomas M. Lenard.
"The DOJ has produced no real analysis of the relative merits of alternative forms of relief to guide the District Court in deciding whetherto approve the Proposed Final Judgment (DOJ) fails by a wide margin to meet the standards required of analyses of regulatory proposals.
"Accordingly, the District Court should not accept the Proposed Final Judgment, but should, instead, expand its hearing on the Litigating States Proposal to include the full range of major alternatives," they conclude.
Those alternatives include the Proposed Final Judgment, proposals by litigating states and structural remedies, including the 'vertical-divestiture' remedy initially adopted by the Court, and Lenard's 'hybrid' proposal.
"The Competitive Impact Statement (the Justice Department's assessment of the proposed settlement) claims the Proposed Final Judgment 'will eliminate Microsoft's illegal practices, prevent recurrence of the same or similar practices, and restore the competitive threat that middleware products posed prior to Microsoft's unlawful undertaking,'" write Eisenach and Lenard. "But the CIS presents virtually no analysis to support this claim.
"The PFJ does not even succeed in (the) minimal goal -- of creating the conditions under which the Netscape browser could have competed without being subject to Microsoft's exclusionary practices," they write. "Indeed, the PFJ specifically permits many of the exclusionary practices in which Microsoft engaged."
Eisenach and Lenard have led the Progress & Freedom Foundation's research on antitrust issues in high-tech industries. Both are Ph.D. economists with broad experience in and out of government. The foundation has issued a number of studies on the Microsoft case, applying a traditional economic approach to evaluate the issues and potential remedies.
WASHINGTON -- Political Privacy: Is Less Information Really Better?
By the Progress & Freedom Foundation
Fervent calls to exempt Web-based political activities from campaign disclosure laws and to restrict further the use of voter information in the name of privacy protection should not be heeded, according to PFF President Jeffery A. Eisenach, because both actions are unnecessary and could diminish American democracy and the future of the Internet.
"At the end of the day, each of these suggested remedies rests on the principle that less information is better," writes Eisenach in "Political Privacy: Is Less Information Really Better," his initial Progress on Point commentary for 2002.
"It is a principle that is fundamentally at odds with American political tradition, and if followed will lead to a less vibrant, less representative, less competitive and less reliable American polity."
This puts him at odds with those who argue for special protections for anonymity in political speech on the Web. But, evoking Supreme Court decisions Buckley vs. Valeo and McIntyre vs. Ohio Elections Commission and Justice Brandeis' admonition to let sunshine act as a political disinfectant, he maintains they are better served by the free flow of information.
"Those who love the Web, and truly wish it to achieve its potential to further revolutionize politics, should be the last to want it to be moved out of the sunshine of disclosure and into the darkness of secrecy and deceit," he writes.
Eisenach holds to the same principle on targeted political marketing, calling it "a benefit, not a cost, of the digital revolution." He says targeted political marketing, known as TPM, reduces unwanted communications, allows under-funded and minority voices to be heard and is responsive to consumer privacy preferences.
"(TPM), as in the commercial marketplace, has generated lots of heated and rhetorically charged criticism, little if any of which seems to be backed up by data, or even persuasive anecdotal evidence, suggesting that anyone is actually harmed," Eisenach writes.
"To the contrary, better information makes for both better markets and better campaigns, benefits we will be denied if we heed calls for increased reguations."
